The Office of the Comptroller of the Currency, the Federal Reserve Board, FDIC, The SEC (why the SEC? Oh yeah...a mortgage is a security), the Federal Housing Agency (FHA) and HUD announced that the agencies will release a rule that addresses section 941 of the Dodd-Frank Act.
Riddle me this Batman.....
If You are a Mortgage Lender What Sort of Liability can Kill and industry, but still be required by consumers????
A Non Qualified Residential Mortgage
So....that begs two questions!
1) Why Should I care?
The reason we need to care is that the rates of Non-Qualified Residential Mortgages ARE GOING TO GO UP DRASTICALLY! Under the new rule, lenders who lend Non-Qualified Residential Mortgages (NQRM's) will have to set aside 5% of the loan amount for a loss reserve account. For example, if you have a $300,000 mortgage that is NQRM, guess what? $15,000 needs to be set aside in case that loan goes bad!
HOLY CHUMP CHANGE BATMAN!
Guess how that money will be accumulated? Mortgage lenders don't make that amount of money on almost any transaction. So.....The borrower is going to feel the brunt of the pain. How's an extra $15,000 in closing costs, or instead of a 5.0% Rate, that same rate will jump to 6.25% to accommodate that 5% reserve....all on top of whatever the lender needs to charge the consumer in order to cover their costs and bank a bit of profit!
2) What is a Qualified Residential Mortgage?
No one is sure, but right now it appears that the criteria that will be set forth will be
VERY STRICT INDEED!
As of today it looks like...a
QUALIFIED RESIDENTIAL MORTGAGE
(WHICH WILL BE EXEMPT OF THE RESERVES)
- Maximum front-end and back-end borrower debt-to-income ratios of 28 percent and 36 percent respectively;
- A maximum loan-to-value (LTV) ratio of 80 percent in the case of a purchase transaction ( with a 75 percent combined LTV for refinance transactions, reduced to 70 percent for cash-out refis);
- A 20 percent down payment requirement in the case of a purchase transaction; and
- Borrower credit history restrictions, including no 60-day delinquencies on any debt obligation with the previous 24 months
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